Ed. Note: Donald Frey was the rare corporate director who was willing to speak candidly about the good, bad, and ugly doings inside the boardroom. He penned an article, "Reminiscences on Succession Planning," for DIRECTORS & BOARDS in 1995, which was a few years after he had retired as chairman and CEO of Bell and Howell Co. (Earlier in his career as an engineer with Ford Motor Co. he was instrumental in the design of the Mustang.) He stayed active as a professor of industrial engineering and management science at Northwestern University. He died on March 5, 2010, at the age of 86.
WITH A cumulative total of over 80 years of service as an outside director for various Fortune 500 companies, I have seen many styles of succession planning, everything from brilliant to stupid, from successful (say, for the employees and shareholders) to abysmal failure, and from thoughtfully planned to abruptly forced.
I have observed cases of CEOs trying to stay on (perhaps better said, "hang on") after normal retirement. Various reasons are offered, one being that his or her successor is not yet ready and needs more mentoring by the CEO. In one case, a hidden reason was that the retiring CEO did not make any money on his stock options. In another case, no logical successor could be identified because the CEO in earlier years systematically destroyed potential successors, so that no one is perceived by the CEO as threatening or perceived by the board to be ready at his normal retirement. (Boards almost never hear both sides of a dismissal or demotion). Lack of self-confidence or paranoia are surprisingly not unknown, even with successful CEOs. For whatever reason, the sitting CEO is kept on year to year by a supine board, sometimes until the roof totally caves in.
Another scenario has the CEO appointing, with no board involvement, one of his internal buddies as successor. The chief characteristic of this heir apparent may be loyal service--to the retiring CEO. Loyal service does not automatically mean leadership. The ultimate result is frequently disaster, with yet another new chief executive to soon follow.
Additionally, the retiring CEO can think that, with a loyal servant as successor, control can still be exerted--particularly if the retired CEO is still on the board, a circumstance which I strongly do not recommend. The former CEO on the board places an enormous burden on the new CEO, who may or should want to change things--some of which could be the...